Good day, ladies and gentlemen, welcome to the Q1 2019 Tenaris S.A. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Giovanni Sardagna, Investor Relations Officer. You may begin.
Thank you, and welcome to Tenaris 2019 first quarter conference call. Before we start, I would like to remind you that during this conference call, we will be discussing forward-looking information and that our actual results may vary from those expressed or implied during this call. With me on the call today are Paolo Rocca, our Chairman and CEO, Edgardo Carles, our Chief Financial Officer, Guillermo Vogel, Vice Chairman and Member of our Board of Directors, Germán Curá, Vice Chairman and Member of our Board of Directors, Gabriel Podskubka, President of our Eastern Hemisphere Operations, and Luca Zanotti, President of our U.S. Operations. Before passing over the call to Paolo for his opening remark, I would like to briefly comment our quarterly results.
During the first quarter of 2019, sales were $1.9 billion, in line with the corresponding quarter of last year and down 11% sequentially, mainly reflecting no deliveries of offshore line pipe for East Mediterranean gas projects and the slowdown in the U.S. and Canadian markets. Our quarterly operating income at $259 million, which benefited from a $50 million recovery of tariffs paid on the imports of steel barring to the U.S., was 22% higher year-on-year on a similar level of sales. Average selling prices in our tubes operating segments were up 13% compared to the corresponding quarter of last year, and up 2% compared to the previous quarter due to a more favorable product mix. During the quarter, our working capital declined by almost $200 million, mostly reflecting a reduction in receivables and inventories.
Our free cash flow amounted to $462 million, and our net cash position increased by $281 million to $766 million at the end of the quarter. Now, I will ask Paolo to say a few words before we open the call to questions.
Thank you, Giovanni, and good morning to all of you. In this first quarter of 2019, we improved our cash flow performance, reducing our working capital and generating a free cash flow of $462 million, equal to 25% of our sales. With this, we increased our net cash position to $766 million at the end of the quarter, even after paying for a controlling shareholding in Saudi Steel Pipe. For several months now, we have been focusing on this aspect of our operation, we are pleased to see the results coming through. Financial strength is an important differentiator for Tenaris in today volatile world, and one which enable us to take advantage of the new opportunities that are opening up in our sector.
As we mentioned in our last call, we are entering a new phase of expansion in key markets for the oil and gas industry following several years of organic growth, which culminated in the construction and startup of our Bay City Seamless Pipe Mill in Texas. In Saudi Arabia, we are working hard to integrate and upgrade the industrial performance of the welded pipe facilities we acquired in January and open up new market in the region. In the U.S., we recently announced the conclusion of an agreement to acquire IPSCO Tubulars, subject to the corresponding regulatory approvals. This new investment would add to the $8 billion we have invested in the country over the past 15 years, supporting the growth and efficiency of the U.S. energy industry and building a solid U.S. manufacturing footprint.
The acquisition and subsequent integration of IPSCO will complete our geographical deployment in the United States and expand our product range produced domestically, as well as our product portfolio. With the Koppel Steel shop, we will enhance our vertical integration in the country. There is a strong product and geographical complementarity between our Bay City Seamless mill and IPSCO's Ambridge small range seamless mill in Pennsylvania. IPSCO's extensive welded pipe heat treatment and finishing facility throughout the country will complement our industrial facilities in the south, allowing us to reduce time to market and improve service to our customers. We value the team at IPSCO and think that they will be an important addition to our U.S. human resources.
Through the integration of the companies, we will be able to generate ample industrial and logistics synergies and have an even stronger platform to promote efficiencies and improve service to customer throughout the country. This year, even if in the first half, there is a slowdown in the onshore Northern American market, in the rest of the world and in offshore market, we are seeing steady growth in the activity. We are winning important awards for deepwater project in Guyana, China, in one of the first deepwater project, the Lingshui project by CNOOC, and on the both side of the Gulf of Mexico, on American and Mexican side, with awards for exploration and development campaigns for several major oil companies.
Tenaris in 2019 will be committed on all fronts in supporting our customer with the full digitalization of the supply chain, in strengthening our industrial system with advanced automation tool to improve safety, quality, and productivity, in executing our growth initiatives. In closing, I would also like to mention that we were recognized by the World Steel as a steel sustainability champion for the second consecutive years. This is an important recognition of the contribution made by our people in this very relevant area for our long-term strategy. Thank you, and I will take any question that you may have.
Ladies and gentlemen, at this time, if you have a question, please press the Star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question is from Igor Levi from BTIG. Your line is now open.
Hey, guys. Could you talk a bit about your relationship with Oxy and Anadarko, especially in relation to Rig Direct and how the deal could affect your competitive position?
Thank you, Igor. I think we have a long-term, very good relation with both companies. I would ask to Luca to add specific comment that could be related to our Rig Direct development deployment in this.
Yes. Thank you, Paolo. Good morning, Igor. Anadarko and Oxy are both big customers. We have a multiple relationship with, not only in the U.S., but also outside internationally, and not only on OCTG, but also in other product line. We are working with both of them to implement our strategy. Frankly, it's neutral, this acquisition, provided that this go through, because as we all know, it's still under, let's say, negotiation.
Thank you. Just to follow up, you mentioned some activity reductions in the U.S. in Rig Direct customers. Could you remind us how much of the U.S. market for Tenaris is Rig Direct, and does that differ by basin? Is there an opportunity to improve your Rig Direct exposure in the Marcellus, with the addition of IPSCO's seamless mill?
Well, what I've mentioned in my remark, is when the activity in general is subdued in this first semester on 2019. We see this in the level of rig count. I was not referring to our Rig Direct. Our Rig Direct continue to expand. We are above the 60% that we mentioned in the last conference call. We could continue to advance in the introduction of this way of serving the client in an integrated way. We really think that this is very relevant for increasing the efficiency and the ability of the company to pursue their target of improve efficiency and cost reduction in their operation. Now, as far as the point that you mentioned, we expect from the IPSCO acquisition, strong to complete our geographical deployment.
We consider that this will enable us to expand the range of product that we are supplying today in our Rig Direct in some region, but also to add and serve and offer alternative in different region. Over time, also in the North. We need to understand fully the position of the client, their willingness to enter in this level of service, and their logistic constraint. I think that geographical integration is one of the main issue that we will pursue with this integration, with this acquisition with IPSCO.
Great. Thank you. I'll turn it back.
Thank you. Our next question is from Ian MacPherson from Simmons. Your line is now open.
Hi. Thank you. I wanted to ask about the international outlook. It sounds from your guidance that the second quarter will roughly resemble the first quarter, excluding the one-time tariff benefit. I wonder if you look beyond the clouds in North America, if you have any visibility for improving sequential business momentum internationally in the second half compared to the first half, or if you expect more of a flat trajectory through the year at this point.
Thank you, Ian. What we see is that clearly, we will not repeat over the extraordinary sales to the line pipe business in the Mediterranean of last year. Also, we will have to face a reduction in Canada. That is the one that you see in the recount in Canada in this month. Now, we will compensate to some extent for this with the additional sales from our acquisition in Saudi, with additional gradual expansion of activity in Mexico. There will be also some, what we call the steady recovery that is underway in different geography of the Eastern Hemisphere. I will ask to Gabriel to give an indication on what we could expect on this.
Thank you, Paolo. Good morning, Ian. In fact, we are seeing a gradual recovery in drilling activity in international markets. In the Middle East, Saudi, UAE, Kuwait, they are pursuing aggressive gas targets to expand. They're seeking self-sufficiency, old replacement, and even exports. We also see Qatar ramping up for drilling, trying to take advantage of their north field and expand their LNG position. We see India moving also into offshore development. Noticeable also the activity and the efforts of the Chinese NOCs boosting gas production in the country. Overall, there is an improvement in drilling activity. The North Sea is another dynamic area where we're seeing some comeback for exploration and some large projects coming on stream, like for example, the Equinor Mariner. Overall, the environment is slowly getting better.
With our technologies and our local position and service capabilities, we are well positioned to take advantage of this positive trend. As you were saying, probably the second quarter will be in line with the first one, but we will start to see some of the impact of this recovery with increased shipments during the second half of the year, especially on the OCTG front, including also the addition of SSP into the portfolio.
Yeah.
Yeah.
In general, as we mentioned in our outlook, we expect the second quarter to be more or less in line with the first quarter. Now, we do not have full visibility on the second part of the year, and I personally think that if the price of oil stays in the range in which it is today, it's not clear to me why some of the large independent and the major in the U.S. shouldn't come back to some additional investment in the second part of the year. This is not something that we have clear indication or visibility today. We will see, I think, over time. Some of the decision to retrench has been taken following the reduction in the price of oil in the end of last year. Today, it looks to me the situation, to some extent, has changed.
Maybe in the second half of 2019, this may influence the investment decision of the oil company also in the United States. Apart from a steady gradual recovery that we may see in international and in Mexico, as I mentioned initially.
That's very helpful. Thank you, everyone. For a follow-up question, I wanted to ask about IPSCO. I assume that you're still tracking a close to the transaction in the second half. I don't know if you can be any more specific than that yet at this point. Maybe not. Also, one of the things that strikes me about the deal, like Tenaris, they run at a very high utilization on their seamless capacity, but their margins are quite a bit weaker than yours are. I think we've been making our own guess as to what the synergies could look like and how much margin accretion you could achieve on their business. I wanted to see if you could speak to those synergy opportunities yet at this stage. Thank you.
Thank you, Ian. As you say, we are actively working for the closing of this deal. We expect this to come in the coming months. We are very confident that this will get through. As far as the synergies are concerned, there are, as I mentioned at the beginning, synergy that comes from the geographical integration. There are synergies that comes from the complementation of the portfolio of product. The IPSCO Tubular has a developed product that fit with the need of some of the clients. We think the complementation with our portfolio is also important. We think there are synergies in the industrial segment. This comes from knowledge sharing. Tenaris is a large company with experience in this. We think there is synergies coming from this.
If I should say, which could be the relevance of this for 2000 and over time, because this is not something we can get immediately, but over time, in 2020 and looking forward, we may expect above the 100 basis points on our margins that should come from the synergies that we think we can achieve. Then we will see when we will have a very clear understanding of what we can do in term of logistic. So if this is, let's say, could be enhanced over time.
Great. Thank you, Paolo.
Thank you. Our next question is from David Anderson from Barclays. Your line is now open.
Just a real brief follow-up on the IPSCO deal. Are there any concerns at all on the antitrust side? Do you think you're going to have to make any divestitures, or do you feel pretty confident this can go through?
No, we are very confident that the deal will go through. The U.S. market is an open market, and these imports represent more than 50% of the market. We expect the deal to get through, as I mentioned before. We do not know exactly the timing for this, but as I was saying, this should happen in the coming months.
Okay.
Thank you, David.
Yeah. Different subject altogether. Gabriel, you were talking a little bit about the international markets. I wonder if you could just kind of focus just a bit more on just the offshore side, the important part of your business. This, over the last couple of weeks, we've been hearing about order books increasing offshore, rigs going back to work, new FIDs potentially being announced. OCTG is also a long lead time item. I'm curious if you're starting to get those inquiries from your customers on some of the, excluding the line pipe, but just the more normal OCTG business. Are you starting to get those inquiries? Would you start expect to see orders in the back part of the year? Can you just give us a flavor as to what you're seeing on that from the offshore customers, please?
Yes, David. Yes. In fact, the offshore is starting to move. We give a guidance more or less on the plus 10% in terms of drilling activity. We are starting to perceiving the tendering books and the FIDs, this increased level of demand. As I commented before, part of this will be seen in the second half of this year and also into 2020. These projects are typically, they take time to be conceived and the lead times. This is not a market that moves as faster as the U.S. This is starting to see a gradual recovery. Indeed, in some of the high-end products, like high chromium steel grades, we are starting to see some tightness in the market. Lead times and pricing in some of those niches associated with offshore are starting to be tighter than what they were a few months ago.
Is it fair to say that's a 2020 event in terms of seeing that improvement in that market?
Yes. Mainly 2020 with some early signs towards the end of 2019.
Yeah. We got some relevant order, for instance, in India that will occur in 2019. Also in some other geography. I think some of this could appear in today. There is the activity in Gulf of Mexico. I would ask Luca, because it's an area in which we are being successful and in which also the level of activity in our view will occur.
Yes. Thank you. Morning, Dave. Now, yes, in the Gulf of Mexico, we see, as Gabriel was saying before, an uptick in activity. Of course, this is talking about 2020. We also have been pretty successful in gaining long-term contracts with major operators on both sides of the U.S. and the Mexican Gulf. This is basically has been based on our technology, but also the Rig Direct played a key component in us winning this business contract. Bottom line, we are expecting 2020 to start show an improvement, significant improvement in the Gulf of Mexico.
Yeah. On the Mexican side of the Gulf of Mexico, as I mentioned, a number of tender has occurred. We've been very successful in many of them. We expect in Mexico that activity really will be moved on, will occur mainly in the last quarter of 2019 and in 2020. In Brazil, we also expect activity to pick up, during the second part of 2019. We will see some activity from our point of view and in 2020. In the different scenario, we see activity. In West Africa, I think still there is not so much moving on apart from some indication of tieback in Angola. We see that this may happen maybe in 2020, not in 2019, and in some cases, even 2021, later on.
Thank you for that. A separate subject, and maybe I'm also looking at you, Gabriel, as well on the Middle East. Activity is picking up across much of the region. A lot of it is very gas-related. I was wondering if you could talk about how that market is developing for you. If it's gas, I'm expecting it's going to be premium pipe as well. That should be in very high demand. Of course, you now have your Saudi JV as well. I was just wondering if you could talk about how you see that business developing and where you see that Saudi JV. Could you be at full capacity in, say, 12 months? I'm just throwing a number out there, but I'm just curious how you see that market shaping up for you over the next, call it 12-18 months.
Gabriel?
Yes, David. Indeed, gas activity is very keen in the Middle East. Saudi is trying to, as I was saying, to even export gas. They have ambitions now over the next 5 years to become exporter of gas. Self-sufficiency in UAE, self-sufficiency in Kuwait. All this gas is associated with either deep wells or corrosive gas, so it requires special steel grades, requires premium connections. It's comparable to the rich premium of the offshore. For us, they are a very important differentiated segment. We believe SSP will play a role because SSP is covering the larger OD today of the completion of these wells, and this pertains both to gas and oil wells. Today, Aramco is using the products that we manufacture at SSP, both in oil and gas.
We see opportunity for this to expand in Saudi and in the region because, of course, there is a logistic, a lead time advantage over the GCC manufacturing in Dammam, Saudi. We'll see about the timing, about your 12 months. Hopefully, we have always aggressive targets to expand the capability of our plant. We'll see if that will take probably a bit longer than 12 months. Certainly, as you know, and we have discussed, the plant is working at about 50% of its capacity. One of our main opportunities will be to expand it in Saudi and in the region. We'll see how that will play. Thank you.
Thank you very much.
Thank you.
Yeah.
Thank you. Our next question is from Frank McGann from Bank of America. Your line is now open.
Good morning. Paolo, if you could follow up a little bit on your comments in the release on Mexico overall. You sounded a bit more cautious than you had in the prior couple quarters, and I was just wondering if you could go into a little bit more details on the potential restrictions in financing and what you think the outlook would be over the next 6 to 12 and 24 months.
I'm very positive on Mexico. What we have seen from the international oil company, the private company, has been a positive drive for advancing the project. It's also true that Pemex is in a tight financial situation, the government need to act on this. Guillermo, maybe you can add some color on this, and on the financial situation that we can expect.
Sure. Good morning, Frank. Yes. The government has a very strong political commitment to strengthen Pemex, and they have the vision to stop the decline in oil production this year in 2019, then to take it to a level of 2.4, 2.5 million barrels per day by 2024. I think that they're going to take the steps necessary to achieve that. We are seeing already within today that they are increasing the number of rigs that are active in Mexico by Pemex. We expect a nice increase in the rigs this quarter versus last quarter. They have also assigned already five integral services contracts for the management of 20 fields. They are respecting the orders, and they are respecting the commitments or the fields that were assigned during the energy reform.
What we are seeing is three drivers right now that we see increasing over time steadily. One is the Pemex activity per se. Secondly, are the integral services. The third part, the bids that were assigned during the reform. That is already happening, and we are seeing the increase in activity. From what we talk with Pemex, this is going to continue to steadily increase. The government is right now looking at different alternatives to strengthen the financial position of Pemex. They are seeing different actions that they will take, but they have already approved the increase in the CapEx budget for E&P. They have already also assigned an additional $5 billion for this year in terms of different actions that they took. I think that we're going to see more action moving forward.
In terms of the activity, we feel comfortable that we're going to see a steady increase.
Okay, great. Thank you very much.
Thank you. Our next question is from Stephen Gengaro from Stifel. Your line is now open.
Thank you, and good morning. Good afternoon, gentlemen. Two things, if you don't mind starting with, can you just give us an update on just what you're seeing on the North American price side?
Yep. Stephen, on this, I would ask Luca to give you a view of how we perceive the prices are moving in North America now.
This quarter, Q1 2019, our prices has been in line with the previous one. Going forward, in the second quarter, we see, of course, price slightly going down. Stephen, when we talk about our Rig Direct customers, the relationship is such that when talking about prices, not only related to the PipeLogix and the cost of raw material. The situation is such that we are providing a number of different services. I believe that we're going to be able to maintain, of course, looking at what PipeLogix is doing, a decent price, especially on the Rig Direct portion of our customers.
There's also.
We lack visibility on what is going to happen in the second half, because as you said, activity will pick up. This will again change the turnaround, the pricing.
Also, the situation in Gulf of Mexico may be slightly different in this sense.
Yes. In Gulf of Mexico.
Activity picking up, our differentiation is stronger in the offshore, there's different dynamics if this contract materialize.
Yes. Of course. If we anticipate the uptick in Gulf of Mexico to the last quarter of 2019, this will certainly help the pricing of the entire U.S.
Great. Thank you. Then as I think about margin progression, and you touched on some of the improvements you're seeing internationally. I would guess that that would help the mix as you get into the back half of 2019 and 2020, right? More deepwater and more international, which tends to be higher margin. Is that accurate?
Well, it is a segment that is more differentiated. The segment in which we start to see some tightness in some product. Is a segment in which no doubt, has for us, better profitability. Over time, to the extent to which the product goes on, we will see an improve in our margin, driven by the mix. The mix of our sales will change, and this will be reflected over time in our account.
Okay. Thank you. That's helpful.
Thank you. Our next question is from Michael Ray from Redburn. Your line is now open.
Yeah. Hi. Thanks for taking my two questions. Firstly on working capital, nice to see a cash inflow in the quarter. Should we expect a net outflow for the rest of the year? That'd be great. Some guidance there. Then second, just on the Saudi mill, the SSP assets. Can you just give a bit more color on the measures you're actually implementing there to integrate the assets into your network? I think the synergy potential at IPSCO is very interesting, but I'm also wondering what your targets are for SSP's margins. Thanks.
Thank you, Michael. I would ask Edgardo to get deeper into the working capital management here.
Sure. Thank you for the question. Yes, in this quarter, we haven't yet complete all the process of collection of Zohr, which is going to be probably done this quarter. Still, you see in two consecutive quarters, we have been reducing our inventories as a whole, and the DSO also has been improved. Overall, if you remember last call, I was anticipating a reduction of 10 day of working capital as of June. In fact, we already achieved by this quarter. We are expecting now to fly at the more or less at the 150 days of working capital in general. At the end of the day, I don't see significant increases or reduction in working capital moving forward.
We have also to take into consideration that after three year, we have major stoppages of the plant in Mexico in the steel shop. We completed the stoppages in rolling mill number 1, the small diameter, and we are preparing the stoppage for the multi-annual maintenance of rolling mill number 2, large diameter, and the steel shop. To prepare for this, we need to build some working capital, some stock to keep lines operating when the rolling mill are out for maintenance. By the end of June, this is also reflected in what Edgardo was saying. I would say that we should be able then to continue in our process of working capital reduction in the subsequent quarter.
Yeah. We will continue to improve, especially on the DSO.
Yeah.
This is great.
Regarding your second question on SSP, let me comment that we started our integration plan at full speed
I was in Saudi several times during the last quarter. I perceive from our new colleagues a great degree of enthusiasm of being part of Tenaris and a global leader. I think the spirit is very positive there. Also, by the different stakeholders in the kingdom. Aramco and all the relevant stakeholders are welcoming Tenaris to this new footprint in the kingdom. Our team is performing really very well. I'm impressed by the improvements that we have done so far. This is a transformation that will take time. We have delivered over the first three months, 12,000 hours of training with focus on safety. We are already achieving some interesting operational improvement. For example, we have broke already some historical records of threading and coating in just three months. I think there is a lot of potential and area of improvement.
This is a transformation, a very exciting project. It will take months or even years, but I think it's going to be a great addition to what we have in the Middle East.
Thank you, Gabriel.
Thank you.
Thank you. Our next question is from Marc Bianchi from Cowen. Your line is now open.
Thank you. I wanted to ask a little bit more specifically on second quarter, and then talk a little bit more about the back half of the year. If I take the commentary from the press release literally, the revenue in the first quarter will be flat in the second, and then if I use 2018 EBITDA margins, it kind of implies about $375 million of EBITDA in the second quarter. Is that the right way to interpret the commentary?
Well, I can tell you. We have visibility in the second Q, and this is more or less in line with what we are saying. The second part of the year and entire 2019, is something that as I mentioned at the beginning, we see some disconnect between price for level of investment and so. We have no clear visibility of the level of investment of the company in North America, starting from August or September after the summer. On this, we do not express a clear point of view because we think there is not so much visibility. We know other segment, like the one that we mentioned, that Gabriel mentioned, in offshore, international, in Mexico, that are moving and could be positively predictable, but we are reserving our view for the second part of the year, and we will see.
Certainly. Okay. Thank you, Paolo. In terms of the IPSCO comment earlier on 100 basis points of uplift in margin, was that regarding IPSCO's margins right now? I think they're about 12% in 2018, or were you speaking to once the business is included with Tenaris overall could see 100 basis points improvement?
What I'm saying is, once the company is fully integrated and independently for the market situation, the ups and downs that may always happen, we expect we can have above 100 basis points of additional margin for the consolidated entity. This is what I'm saying.
Yep. That's great.
The estimate of our, which we are based, our forecast now. Okay. Thank you.
Okay. I just had one more quick question, sorry. In terms of the cash generation, you guys made the comments about working capital here for the balance of the year, if I look at where you were in the first quarter, excluding the working capital benefit, just try to think about a run rate, you're kind of on a run rate to generate over $1 billion of free cash flow in 2019. Do you think that's a reasonable target?
Well, Edgardo, under this consideration, you can comment on this, yeah?
Yeah. We feel pretty comfortable that this is a reachable number. We're going to be in the range of 12%-14% free cash flow margin for the whole year.
Remember, we are always looking at the business, our business, previous to the merge with IPSCO, that obviously will have an impact in changing some of these drivers.
Let me add something, Paolo. Basically, with these projections that we will have, we are expecting probably to end up the year. We should pay basically the acquisition of IPSCO with our cash in hand. We will end up with a net debt position probably at the end of the year.
Okay. Thank you very much.
Thank you. Our next question is from Alessandro Pozzi from Mediobanca. Your line is now open.
Yeah. Thank you for taking my questions. The first one is on Bay City. I think the guidance was of reaching 450 tons by the end of 2019. I was wondering if you can give us an update on that. Also if we are past the breakeven point for the plant and whether Bay City is going to help probably recover in margins in the second half of 2019.
Thank you, Alessandro. I think we are right on track, doing well. Every month, performance is improving. Luca.
Yes, Paolo.
Feedback on this.
The feedback from the plant is that we are ramping up according to the plans to get to the numbers that you, Alessandro, mentioned in your question. As far as we're concerned, Bay City is smoothly blending in our manufacturing footprint in the United States.
Yes. We are also, I think, at a breakeven in terms of considering everything, and still also including some of the additional engineering intervention.
Yeah
the output that we need to do.
Sure.
We are basically, today, at a level of breakeven.
There are aspects that needs to be improved.
Sure.
Again, as I said before, we are on the path of getting to the numbers that you said.
Yeah. Thank you, Luca.
I have a second question on Argentina, if it's possible. I think you mentioned again that you will see more development towards the oil part of the shale. Can you give us a sense of what growth you expect maybe in 2019 or even 2020 as more projects go into development phase? Thank you.
Thank you. Well, in Argentina, there is a trend or way of moving investment from development of gas resources into oil. This is understandable to some extent. Gas is a longer-term bet, requires investment in infrastructure, not only in the development of the resources. Oil, something that could be developed faster and with lower risk perception in this moment. In this moment in Argentina, the election are coming due in October. It's an electoral year. This is having an influence of the investment decision of the company. The company are kind of analyzing project, considering what they can do. We do not see in this, for the coming quarter, very aggressive investment program in the second or third quarter. There will be some kind of standstill with some shift from gas into oil, preparing for what could be done in the long run.
In the long run, there is no doubt all the company are convinced of the potential of the resources on Vaca Muerta. The issue is not the geology, the issue is not the resource. The company will follow the electoral process, understand the policy of the new government, and on this basis, they will define their investment program for 2020 and beyond.
Thank you.
Thank you.
Thank you. Our next question is from Rob Poulin from Morgan Stanley. Your line is now open.
Hi, gentlemen. Could I just bring together several of the points you've mentioned, especially given the indications of a better second half. Does that mean management is comfortable with 2019 consensus EBITDA, which is slightly above $1.6 billion? The second question, if I may, which I don't think it's been covered yet, is, could you give an update from your perspective on how the negotiations are going around Mexico and Section 232 and when and if and what those changes might be when they materialize? Thank you.
Well, as I mentioned during the call, we are making forward-looking statements for the second Q. We do not have full visibility for the second half, and we are reserving our view on the second half for the time being. I have some area in which we would like to understand better what is going on, especially in North America, in onshore North America. That is a critical area for us. In terms of the 232, that is a very relevant issue for us, and not only for us, but for the steel industry in Mexico and the U.S. I would like to have Germán comment on this because you are very close to this and following this very closely together with Giordano.
Thank you, Paolo. Good morning, Rob. Very briefly, we know that there are intense negotiations between the two countries. We're expecting, in fact, the conversations to be resume as early as next week. We know that the different proposals on both sides. Ultimately, we're expecting a balance at one point to be found around pre-established quotas, which ultimately would allow a free or no tariff trade between the two countries. This is taking time for obvious reasons, but we understand that with a new administration in Mexico and, at the same time, given the trade agenda of the U.S., a determination to ultimately find
A solution, a formula, which may reestablish ultimately some rational level of trade with no tariff impact.
Thank you, Germán.
Thank you, guys.
Thank you. Our next question is from Vlad Dzhergovsky from Bank of America. Your line is now open.
Thank you. Just two quick clarifications, if I may. First one, on the offshore, if I may follow up. Can you share with us whether you are tendering any large sizable line pipe projects offshore, which could boost volumes next year or the year after? Whether you are seeing some of these projects on the horizon. Secondly, can you give us roughly the number of import duties you were paying in relations to importing OCTG into U.S. per quarter these days? Thanks very much.
The first point, I can tell you that we do not see today important line pipe project of the size of the Mediterranean line pipe that we saw in last year. We see a number of project, but some is tieback, and the size of the line pipe project is not enormous. Still, we see activity even in, for instance, we got a letter of intent recently for important project in North Sea, but the size of this project is between seven, 10,000 tons, or even more, but not the 300,000 tons that we've seen in the case of Zohr, only for the welded part. This is what we see, and this is where we have visibility. This does not imply that or during the course of the year, the company will start considering FID for a project of very large and new size.
This could happen. We do not see this. On the second question, on the third Q, which is the level of wealth. I think Germán has given answer concerning the 232. Today, we are coming into U.S., in our side, paying tariff from some of our export from Mexico. If there is an agreement of the 232, and Mexico and U.S. arrive to an agreement on substituting tariff with quotas, this could be a relevant change also from our side. We expect no other major change in the 232 concerning all of the other countries. Remember, there is a decision due in May for the anti-dumping against Korea. This is also an important decision because Korea today, in the preliminary consideration, some company had 45% duty, some other 20%. The final decision will be taken.
This is not a tariff, could have an impact.
That's great. Thank you very much. Can I quickly clarify whether you could give us an idea of what the financial impact of the removal of Mexico tariff could be, what it would mean to your EBITDA or earnings?
Well, we cannot comment on this before knowing which will be the end of the negotiation. In the end, we are considering this change, in this moment, there is not even an agreement of substitution of tariff with quota. Mexico would like to have a no quota environment. Maybe, Guillermo, you can comment, give some light on this. Frankly, we have no clear view, we cannot give a clear calculation or understanding what will be the impact.
Just complementing what Germán said. Actually, the negotiations were kind of frozen with the change and the coming on stream on the new government. There had been no advance. Mexico was having a position of no tariffs at all, while the U.S. had a position of having quotas instead of tariffs. The good news is that, as Germán said, negotiations have reinitiated. We know that today, there are actually, the Mexico representative is sitting with Mr. Lighthizer, and next week. We expect to have news in terms of the development, how the negotiation comes, and what the actual basis of the negotiations are going to be. I think that the Mexican government has a very clear picture in terms of what the strategy should be.
The U.S. has a well position in terms of what they think the outcome has to come. I would expect to have a solution, not in the short term, no.
Thank you.
That's great. Thank you very much.
Thank you. Our next question is from Alan Spence from Jefferies. Your line is now open.
Thanks for taking my question. I was just hoping to get an update on the JV with Severstal, if you could give us some color around where you are in terms of all the necessary approvals, a reminder of the construction timeline, and if you can share any of the metrics such as the IRR or potential payback of the project, please.
On this, Gabriel, you may update on the advance of the project and the expected timeline. We will not comment too much on what would be the return at this point in time, but it's up to you.
Yes. Thank you, Paolo. In fact, we are progressing well with our partner, Severstal. We have incorporated the JV. We have concluded much of the documentation of how we are going to operate on the governance of the JV. We are working together with the basic engineering and preparing for the tender process about the construction of the facility. This will be done during the next couple of years, and we are targeting mid 2021 for the commissioning and the ramp-up. So far so good, and we're getting a good reception in general from the different customers in Russia to this new JV.
Yes. No hurdle, no obstacle on the road up to now, and we proceed, and we will see.
Okay. Thank you very much.
Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Giovanni Sardagna for closing remarks.
Okay. Thank you. Thank you all for joining us in our quarterly call, and I'll see you soon. Thanks.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.